The eco currency: A misstep for West African economies?

The prospect of the eco, a unified currency proposed for the 15 member states of the Economic Community of West African States (ECOWAS), has stirred excitement across the region. It is framed as a bold step toward economic integration, self-reliance, and regional cooperation. Advocates of the eco argue that it will facilitate trade, stabilise economies, and attract foreign investment. However, upon closer scrutiny, it becomes evident that this enthusiasm may be misplaced. For all its symbolic appeal, the eco represents an unnecessary and potentially detrimental direction for West African economies at this time.

While the vision of a unified currency reflects a long-standing aspiration for African unity, it fails to adequately account for the structural, economic, and institutional challenges of the region. This article will examine the reality of the eco, dispel the myths surrounding its proposed benefits, and argue why West African economies should prioritise other critical areas before pursuing monetary union.

The vision behind the eco

The eco is part of a broader effort to foster regional integration and reduce dependence on external currencies like the US dollar and the euro. As envisioned, the eco would be managed by the proposed African Central Bank (ACB) and serve as the cornerstone of the African Monetary Union (AMU). Proponents hope it will:

1. Facilitate trade among ECOWAS countries by eliminating exchange rate barriers.
2. Enhance monetary control and reduce vulnerability to external shocks.
3. Encourage foreign investment by creating a unified and stable economic zone.
4. Foster a sense of regional identity and collaboration.

These aspirations are ambitious and rooted in the desire for greater economic sovereignty. However, the gap between vision and implementation is vast, and the realities of West African economies suggest the eco is not the right solution at this time.

Dispelling the myths surrounding the eco

1. Will the eco facilitate trade?

Proponents claim that a single currency will boost intra-regional trade by eliminating exchange rate volatility and reducing transaction costs. However, this argument oversimplifies the barriers to trade in West Africa:

• Low intra-regional trade levels:

Intra-ECOWAS trade accounts for less than 15 percent of total trade in the region. The primary reasons for this are not currency-related but include:

• Poor infrastructure (e.g., roads, ports, and railways).
• Non-tariff barriers such as customs delays, corruption, and regulatory discrepancies.
• Lack of diversified production, with most countries exporting raw materials and importing finished goods.
• Without addressing these fundamental issues, the removal of currency barriers alone will have little impact on trade volumes.

Limited economic complementarity:

Many ECOWAS countries produce similar goods, such as raw agricultural products, making trade within the region less attractive compared to trade with external partners.

Informal markets:

A significant portion of trade in West Africa occurs in informal markets, where transactions are often conducted in cash. A unified currency will not meaningfully impact these markets.

2. Will the economy attract foreign investment?

A unified currency is often touted as a means to create a larger, more cohesive market that appeals to foreign investors. However, this overlooks the primary concerns of investors in West Africa:

• Governance and political instability:

Corruption, weak institutions, and frequent political upheavals are major deterrents to investment in the region. A new currency will not resolve these issues.

• Infrastructure deficits:

Investors prioritise regions with reliable infrastructure, including roads, energy, and telecommunications. West Africa’s infrastructure gaps are far more pressing than its currency arrangements.

• Economic volatility:

The success of the eco depends on the fiscal and monetary discipline of member states. If weaker economies fail to adhere to convergence criteria, the economy could become a source of instability, deterring rather than attracting investment.

• Continued dependence on external currencies:

Foreign investors often peg transactions to stable currencies like the US dollar or euro. This preference is unlikely to change immediately with the introduction of the eco, especially if the new currency lacks credibility and stability.

3. Will the eco promote economic stability?

The idea that a single currency will stabilise West African economies is overly optimistic. Economic stability depends on more than currency unification; it requires sound fiscal and monetary policies, diversified economies, and resilient institutions.

• Fiscal indiscipline:

Many ECOWAS countries struggle with high debt levels, budget deficits, and inflation. For example:

• Nigeria, the largest economy in the region, has faced double-digit inflation for years.
• Smaller economies like Sierra Leone and Liberia have limited fiscal capacity and rely heavily on external aid.

Introducing a single currency without ensuring fiscal discipline across member states could lead to imbalances that undermine the economy’s stability.

• Lessons from the Eurozone:

The European Union, often cited as a model for the economy, has experienced significant challenges with its single currency. The Greek debt crisis highlighted the risks of monetary union among economically diverse countries. West Africa’s disparities are even more pronounced, raising serious concerns about the feasibility of a stable currency union.

Structural challenges of West African economies

The structural realities of West African economies further underscore why the eco is ill-timed and unnecessary:

• Economic diversity:

ECOWAS countries have vastly different economic structures, resource endowments, and levels of development. For example:

Nigeria accounts for more than 70 percent of the region’s GDP, while smaller economies like Gambia and Guinea-Bissau contribute marginally.

Resource dependence varies widely, with Nigeria relying on oil exports and others on agriculture or remittances.

A single currency would struggle to accommodate such diversity.

• Dependency on external trade:

Most West African economies are heavily reliant on trade with external partners, such as the European Union, China, and the United States. Intra-regional trade is minimal, limiting the practical benefits of a shared currency.

• Weak financial systems:

The financial infrastructure required to support a unified currency is underdeveloped in many ECOWAS countries. Banking penetration, digital payment systems, and financial literacy levels remain low.

What should be the priorities instead?

Rather than pursuing the eco, West African economies should focus on addressing the foundational issues that hinder growth and development:

• Infrastructure development:

Invest in roads, ports, energy, and telecommunications to facilitate trade and attract investment.

• Economic diversification:

Reduce reliance on raw material exports by developing manufacturing and service sectors.

• Strengthening governance:

Combat corruption, improve regulatory frameworks, and ensure political stability to create a conducive environment for investment.

• Trade facilitation:

Implement the African Continental Free Trade Area (AfCFTA) effectively to boost intra-African trade.

• Financial inclusion:

Develop robust financial systems and promote access to banking and digital payment platforms.

Conclusion: A symbolic gesture, not a practical solution

The eco is undoubtedly a symbol of West Africa’s aspirations for unity and self-reliance. However, as a practical economic tool, it is poorly suited to the region’s current realities. The structural, institutional, and economic challenges of ECOWAS countries make the introduction of a single currency both premature and potentially harmful.

West African economies have far more pressing priorities, from infrastructure development to governance reform and economic diversification. By addressing these issues first, the region can lay the groundwork for meaningful integration and sustainable growth. Until then, the eco risks being little more than an expensive and disruptive experiment that diverts attention from the real challenges facing West Africa.

Dr Brian Reuben is the Executive Chairman of the Sixteenth Council